Michael H Goldhaber on Sat, 27 Dec 2008 04:44:45 +0100 (CET)

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Re: <nettime> Dollar Shift: Chinese Pockets Filled as Americans Emptied

Here's a recent entry from my blog  http://goldhaber.org/blog/?p=168  . 
I've been suggesting a somewhat different longterm view.

Money?s Dream Life Gets Nightmarish ?? And Just Might Stay That Way
Sunday, December 21st, 2008

A couple of years ago, I pointed out that in some ways money was  
losing its hold on reality. Routine activities and producing things to  
which can be assigned some relatively stable amount of money now  
occupy far less than majority of human effort ? while more and more  
energy goes into the new attention economy, which is only loosely  
connected with money or markets. At the same time, the growing  
financial sector takes on the possibility of treating money as a pure  
symbol, without any underlying or inherent meaning. Financial money  
can grow or shrink, and this has real effects in what is left of the  
market economy, but many of the shenanigans within finance do not  
really do anything beyond the purely symbolic.

Now the future of money has become more imbued with the excesses of  
money?s dream life. To the extent that markets do require money, they  
also require mechanisms for the insertion of money where needed, and  
that depends on trust, which is the basis of all loans, investments,  
etc. Trust is now rapidly leaving the system. The mysteries of  
derivatives, of the vast variety of new financial instruments, and of  
things like hedge funds are a perfect cover for the most rudimentary  
sorts of scams, including the recently unveiled Ponzi scheme of one  
Bernard Madoff. (A Ponzi scheme requires ever-more investment into it,  
as current investments are used to pay earlier participants, though  
this is only necessary if the early investors actually take money out.  
Like roulette bettors who just let their money ride on a certain bet  
as winnings pile up, investors in a Ponzi can be fooled by entirely  
fictional increases in their holdings to leave all their theoretical  
winnings in, and they might also be likely to add more to the fund,  
and tout it to their friends. )

Madoff, who caught many who should have known better, as well as a  
considerable number who could not have been expected to see through  
his deviousness, was actually apparently quite limited in his methods  
of covering up his scheme. To whit: he claimed nearly the same yearly  
growth from one year to the next, which after a few years becomes  
statistically very unlikely. A more astute Ponzi scheme could vary the  
growth. This has its limits, of course. You wouldn?t want your Ponzi  
scheme to issue reports that are too downbeat, because then investors  
might leave. Still, greater sophistication in reporting incomes so as  
to evade questions certainly seems possible. Thus, how do you know  
that your next investment vehicle will not turn out to be a Ponzi  
scheme or something perhaps honest but hare-brained?

The obvious answer might seem to be to diversify investments. But in  
the Madoff case, some investors thought they were investing in  
different funds entirely. Any company can do what it likes with any  
extra cash on hand, so how do  you know that an apparently reliable  
company that makes what seems like a real and straightforward product  
is not investing in some other dubious scheme? Even a company which  
does nothing of the sort must take increasing risks in new investments  
as the climate of creativity heats up. You cannot rely on this year?s  
popularity to get a company through competition that might not even  
exist yet but will be quite evident in a few years. The speed at which  
new kinds of products and services can be put on offer renders the  
?long term? increasingly short. This past year also shows that such  
supposedly safe and durable investments such as land and raw materials  
like petroleum can be highly speculative, because speculating on  
futures in all such areas can play havoc with the prices there too, if  
at a high enough level.

The net result of all this is that trust has fallen to lows not seen  
since the Great Depression.

But new means of speculation, based on the likes of the Internet and  
advanced computation are not likely to disappear. Thus a return to  
?fundamentals? cannot be counted on ? ever again. Regulation is  
unlikely to be astute enough to keep track of all the new means of  
engaging in new kinds of investment, and nothing can stop these except  
a complete freeze of the monetary system. That?s where we may well be  
headed. Alternatives to money and the wide-open market are likely to  


On Dec 26, 2008, at 2:59 PM, Scot Mcphee wrote:

>On 26/12/2008, at 8:19 PM, Felix Stalder wrote:
> Yes I read that article last night (my time) too. Several things
> spring to mind.

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